US and China economic cues fail to budge oil prices

Oil prices remained within a narrow range on Monday, following three consecutive weeks of losses. Investors are concerned about weakening demand and economic growth, which has put downward pressure on crude prices. The market is now focused on key U.S. and Chinese economic data expected later this week, which may provide insight into the direction of oil prices.

Over the past three weeks, concerns about a U.S. recession and banking crisis, rising interest rates, and soft Chinese demand pushed crude prices to their lowest levels in 15 months. However, the market found some support on Friday following stronger-than-expected nonfarm payrolls data, which indicated that the U.S. economy is somewhat resilient.

Despite crude prices trading above $70 a barrel, further gains are uncertain due to the uncertainty surrounding the Federal Reserve’s reaction to the strong labor data. Brent oil futures were steady at $75.36 a barrel, while West Texas Intermediate crude futures edged up 0.1% to $71.44 a barrel by 21:07 ET (01:07 GMT). Both contracts fell between 5% to 7% in the previous week.

Investors are now focused on U.S. consumer price index inflation data, scheduled to be released on Wednesday, to determine whether inflation has eased following the sharp increase in interest rates. While the data is expected to show a slight drop in inflation for April, it is still expected to be well above the Fed’s annual target of 2%.

China’s trade data, which is due on Tuesday, is expected to provide additional information on commodity imports by the world’s largest oil importer. However, overall Chinese imports are expected to weaken further in April due to signs that the post-COVID economic recovery in the country is losing steam.

On Wednesday, there will be release of Chinese inflation data which is predicted to show persistent low pressure on prices as the country endeavors to boost investment and spending. Due to disappointing economic indicators, particularly in the manufacturing domain, there are concerns among oil markets that China’s rebound may be insufficient to propel oil demand to new peaks in 2023.

The significant decline in crude prices observed during the last three weeks can be attributed to apprehensions about deteriorating economic conditions in the U.S., as well as worries over China’s economic rebound. These factors have largely cancelled out the initial benefits from the unplanned reduction in production by the Organization of the Petroleum Exporting Countries (OPEC).

However, with the OPEC cut set to take effect in May, oil supplies are expected to tighten, which could lend support to prices in the near-term.

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